Saturday, May 30, 2009

May 30th Stock market report: Week's summary and the week ahead

It was another painful week for Shorts, including yours truly. But we are now back where we were on May 18th when the Dow closed at 8,504 and the S&P 500 closed at 910. Yesterday the Dow closed at 8,500 and the S&P 500 closed at 919. The Nasdaq has done better as it closed on May 18th at 1732 and yesterday closed at 1,774, for a 2.4% gain. My ETF Triple Short play, TZA back on May 18th closed at $26.65 while yesterday it closed at $24.84, or a 6.8% loss, even though it reached a high yesterday of $26.63. A close friend of mine has been going along for this ride and has SDS. His SDS on May 18th closed at $57.76 and yesterday closed at $55.81, about a $2/share drop or 3.5%. Sorry friend! With these ETF's they can explode in a more volatile market, but we have not had the volatility, in either direction, for that explosion.

The VIX Index, which measures Volatility, closed yesterday at 28.92. This is well below the highs of the upper 30's to the 50's this Index showed back in April. The Put to Call ratio closed the week at 0.77 and so that measure also is pretty stable as well.

The only thing worthy of notice was yesterdays last hour of trading. The Dow was at 8,400 an hour before the close but then accelerated to its peak at the close of 8,504. Looking at the charts for companies like IBM, symbol IBM, McDonald's Corp, symbol MCD, Wells Fargo Bank, symbol WFC, Bank of America, symbol BAC, and lastly Ford Motor, symbol F, all had huge purchases in the last 15 minutes before the close. I suggest you look at your stocks on a minute by minute basis for 2 days and look at the spike in the last few minutes. To me this spike looked like a climax, and I use the word here deliberately to signify change in trend. Even the VIX dropped precipitously in the last 30 minutes. Therefore, I believe we are at a key turning point for the market. I have put several of these charts at the beginning of this post so you can see what I am referring to. The charts are 2 days of time and one minute intervals for the selected stocks mentioned above. Notice Volume spikes as well corresponding price spikes in the last few minutes.

If we reached a climax yesterday, then something is going to be different next week. I can not say whether the markets will decisively move down or up at this point, because there are no "tells" out there that I watch giving me the necessary direction but here are some facts. Gold closed yesterday up $19/ounce to $979. (I said watch Gold and said it was going past $955 when it was $869.) Oil has climbed back to $64/barrel. Silver has climbed to $15.75/ounce. Either the economy is getting better or inflation worries are here big time. Silver is up 75% since its low of $9/ounce in November. Gold is up 35% since that same time. If this turns out to be a major Bull rally, I will concede I was wrong to go Short with TZA. However, I could be just as right and the market is set to go down from here. The old adage "Sell in May" became a noted slogan for a reason. That reason may come to fruition.

My major emphasis has been to preserve capital on this site for the past few months. I said the rally was for real back when it turned up and I stated at that time many will not believe it. Well, for the past few weeks it has stalled between the low of 8,200 on the Dow and 8,600. I expect we will have a breakout now from Friday's action in the last 1/2 hour. Remember for every purchase yesterday there was a seller. They got the price they wanted for those sales as the tick went up but the buyers could be on the wrong side of that trade. Besides does anyone really believe that Consumers are going to be spending even if Consumer Confidence rose in May to 68.7 from 65.1 in April? To me the bigger news was that Chicago Purchasing Manages index went down from 40.1 in April to 34.9 in May. Time will tell. Stay tuned.

Tomorrow is the end of the month of May so if you have not yet voted during May in my Mini Poll of how long the recession will last please do. But please no double voting.

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Thursday, May 28, 2009

Market Outlook for May 28, 2009

Futures point up this morning as Durable Goods Orders showed a 1.9% gain for April. But March numbers were revised down 2.1%. All 3 Indexes show small moves up this morning and are not something that can be counted on for the day. While Weekly Jobless Claims were reported down this morning to 623,000 for the past week. But Continuing Claims reached a new high at 6.79 Million.

Still there is a lack of clarity as to what the strategy is for the Government regarding trying to keep mortgages available with cheap interest rates but the Treasuries for 2 year and 10 year duration seemed to suggest rates will be rising, which would seem to thwart the Fed's plans to keep Mortgage Interest rates low. The Bond market is getting nervous and hence the big swing down yesterday.

Oil is up again to $63/barell. Gold hovers around $955/ounce as Silver has moved over $15/ounce. European markets are all down this morning as well.

As we travel through the no mans land of 8,200 to 8,600 on the Dow waiting for a clear direction, none seems to be showing itself. But pressing the markets continues to be the decline in the 200 Day Moving average daily for all 3 Indexes, the Dow, Nasdaq and the S&P 500. If I were to guess, and we all know that's all it is, I believe the market will be down again today but not by more than 100 on the Dow. We are going to stay in this tight range until some news breaks to drive these markets decisively. That could take the whole summer, I'm sorry to say. Or there could be something Internationally which triggers the drop.

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Wednesday, May 27, 2009

Market summary for May 27th

Today started positive in all 3 Indexes, the Dow, the Nasdaq and the S&P 500, but they all ended down today, giving up much of yesterdays gains on about the same, to slightly higher volume. The volume is still low considering the 50 day Moving average Volume. The Nasdaq continues to flirt with trying to staying above the 200 day Moving average, as it has stayed above the 200 Day MA for 4 days in a month. For the past 2 days it has managed to stay above it, which currently crosses the axis at 1,700. Today's close was at 1,748. Tech's have led the Market up for the past 3 months, but seem to have staled out at the 200 day MA the past 2 weeks.

The Dow closed today at 8,300. The 200 day MA crosses the axis now at 8,900. While there still is room for the Dow to climb, it too has stalled the past 12 days in a tight range of between 8,200 and 8,600. The Dow's volume has been below the 50 day MA volume 19 out of the past 23 days. We need to have a breakout either above or below 8,200 and 8,600 to see where the next trend is going to take us. To me this and especially the 200 Day MA line are is going to limit the upside move.

The S&P 500 closed today at 893. The 200 day MA crosses the axis at 930. We reached a climax on this Index on May 8th when the Index closed at 930. Since then we have taken a step down. The range here is from 885 to 913. This 200 day MA is dropping at a rate of about 15 points a week. So if we stay exactly where we are now, the 200 day will be pressing on the Index to go lower in 2 weeks. That should take us past the Unemployment numbers for May as well as the GM bankruptcy to determine the impact on the market.

Treasuries rose sharply today as the curve between 2 year and 10 year was the steepest on record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low. Ten-year notes have lost 10.3 percent this year, according to Merrill Lynch & Co. indexes, while 30-year bonds have lost 27.5 percent. The unprecedented government borrowing has created concern about a rise in consumer prices. Policy makers have expanded the Fed’s balance sheet to $2.2 trillion while excess reserves at U.S. banks have increased to $896.3 billion.

The VIX closed up and closed at 32.36, while the Put to Call ratio closed at 0.86, up from yesterday's close of 0.72 for the day.

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Tuesday, May 26, 2009

Paul Krugman makes sense again comparing the budget crisis in California to the Federal Government crisis.

I was sent this editorial article of Nobel Laureate, Paul Krugman, by a neighbor today and thought I would post it in its entirety. So here it is:

From the New York Times

May 25, 2009
State of Paralysis

California, it has long been claimed, is where the future happens first. But is that still true? If it is, God help America.

The recession has hit the Golden State hard. The housing bubble was bigger there than almost anywhere else, and the bust has been bigger too. California’s unemployment rate, at 11 percent, is the fifth-highest in the nation. And the state’s revenues have suffered accordingly.

What’s really alarming about California, however, is the political system’s inability to rise to the occasion.

Despite the economic slump, despite irresponsible policies that have doubled the state’s debt burden since Arnold Schwarzenegger became governor, California has immense human and financial resources. It should not be in fiscal crisis; it should not be on the verge of cutting essential public services and denying health coverage to almost a million children. But it is — and you have to wonder if California’s political paralysis foreshadows the future of the nation as a whole.

The seeds of California’s current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state’s budget in a straitjacket. Property tax rates were capped, and homeowners were shielded from increases in their tax assessments even as the value of their homes rose.

The result was a tax system that is both inequitable and unstable. It’s inequitable because older homeowners often pay far less property tax than their younger neighbors. It’s unstable because limits on property taxation have forced California to rely more heavily than other states on income taxes, which fall steeply during recessions.

Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature. And this provision has interacted disastrously with state political trends.

For California, where the Republicans began their transformation from the party of Eisenhower to the party of Reagan, is also the place where they began their next transformation, into the party of Rush Limbaugh. As the political tide has turned against California Republicans, the party’s remaining members have become ever more extreme, ever less interested in the actual business of governing.

And while the party’s growing extremism condemns it to seemingly permanent minority status — Mr. Schwarzenegger was and is sui generis — the Republican rump retains enough seats in the Legislature to block any responsible action in the face of the fiscal crisis.

Will the same thing happen to the nation as a whole?

Last week Bill Gross of Pimco, the giant bond fund, warned that the U.S. government may lose its AAA debt rating in a few years, thanks to the trillions it’s spending to rescue the economy and the banks. Is that a real possibility?

Well, in a rational world Mr. Gross’s warning would make no sense. America’s projected deficits may sound large, yet it would take only a modest tax increase to cover the expected rise in interest payments — and right now American taxes are well below those in most other wealthy countries. The fiscal consequences of the current crisis, in other words, should be manageable.

But that presumes that we’ll be able, as a political matter, to act responsibly. The example of California shows that this is by no means guaranteed. And the political problems that have plagued California for years are now increasingly apparent at a national level.

To be blunt: recent events suggest that the Republican Party has been driven mad by lack of power. The few remaining moderates have been defeated, have fled, or are being driven out. What’s left is a party whose national committee has just passed a resolution solemnly declaring that Democrats are “dedicated to restructuring American society along socialist ideals,” and released a video comparing Speaker of the House Nancy Pelosi to Pussy Galore.

And that party still has 40 senators.

So will America follow California into ungovernability? Well, California has some special weaknesses that aren’t shared by the federal government. In particular, tax increases at the federal level don’t require a two-thirds majority, and can in some cases bypass the filibuster. So acting responsibly should be easier in Washington than in Sacramento.

But the California precedent still has me rattled. Who would have thought that America’s largest state, a state whose economy is larger than that of all but a few nations, could so easily become a banana republic?

On the other hand, the problems that plague California politics apply at the national level too.

Seems to me a no-brainer, Californians need to repeal Proposition 13, just like some activists got Proposition 8 banning gay marriage to be upheld by the California Supreme Court today.

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Market summary for May 26th.

I know, the market went up today. So be patient. In my last post I said it would be like a staircase. We may go as high as 8,900 on the Dow before we drop. Just because we spiked up today on nonsense measurements, i.e. Consumer Confidence, the real estate data was terrible, reenforcing the notion that the decline has not stopped or turned. It was painful to see a big drop in TZA today. What did I do. I bought more shares as low as $25.60/share.

The Put to Call ratio closed at 0.70 while the VIX closed at 30.26. Remember watch the Dow and S&P 500 Indexes 200 day Moving averages, as a guide to where we are headed.

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Sunday, May 24, 2009

What do the Charts of the Dow, Nasdaq and S&P tell us? Down is inevitable!

As the title suggests, when you look at 3 charts, they point to all Indexes going down from here. There is no other explanation that merits serious consideration. Let's take them one at a time. I know this may seem too technical but I have tried to explain it in a way that you can understand it if you follow along with each chart. It would be wise to click on the chart to enlarge it as a separate page to view while you are reading the text.

Starting with the Nasdaq Composite Index chart you will notice that it looks back a decade to when the Nasdaq reached its peak over 5,000. As I drew a downtrending Blue line from that peak to connect where the Nasdaq reached its high of 2,800 in the Fall of the year 2007, I drew another red line which covers the period of 2007 to now. While there is a slight difference in the 2 lines, it is not significant enough yet to distinguish. However they point to this downtrend line continuing. We will NOT break above these lines and the 200 day Moving Average line, denoted as a yellow line hugging close to the data points, until we truly return to a Bull market. That day looks to me interpreting the way forward, not to occur for at least 1 year and possibly 2 years. That is when we will see if we can go above these downtrend lines. The line at the very bottom in blue says we most likely will not go below 1,300 in that 2 year time from today, if that is of any comfort. The Nasdaq Composite Index closed Friday at 1,692. Now let's turn to the Dow chart.

The Dow chart is also a 10 year look back and a projection of the downtrend line continuing. Here too we hit a peak in the Fall of 2007 and then dropped in a series of stairs, each one up leading to a sharp step down. The blue line dropping from the Spring of 2008 connects to almost exactly where we are today where we closed Friday at 8,277, a little above where this blue line is but very close to the 200 day Moving Average. In fact, if you don't know how to, or like to, draw these charts, using the 200 day Moving average accomplishes almost the same thing. As I look at the chart and the lines I have drawn, we will be lucky if we can stay above the lower floor of the Dow at 6,400. But there is going to be a test of this level, most likely this year. When it will happen is difficult to predict, but I will give it a try. It looks to me it will be tested again this Fall. It may start by testing the low 7,000's like first the 7,800 level followed by the 7,500 level and then the 7,200 level before its final decent. It can bounce up from each of these tests, but remember it is like a staircase. Each test takes us lower.

There is no guarantee we will not break below 6,400. As a matter of fact, there appears to be a 50/50 chance we will. Why do I say that? Because of the steepness of the blue downtrend line. If we do break through the 6,400 level, I am hopeful we will set a new bottom but that bottom could only be at Dow 6,100, not the Dow 4,000 that so many have predicting. If that occurred and we did go to 6,100, we could bounce back up off the low and start to climb and start breaking above the blue downtrend line and form a stable floor for the market to climb out of. Again this looks like Fall is the timeframe as much more news about the health of the economy, unemployment, the Banking system and the auto industry will be clearer than today. If things look more optimistic we then could start a new Bull market, but not until then. We have been, and are, in a Bear Market Rally! The S&P 500 chart looks very similar to the Dow and I would expect this Index to behave the same as the Dow.

So there you have a look into what I see happening over the next 5-6 months and why I still have kept holding my ETF Short Triple Play, symbol TZA. If I am correct in my outlook, this could yield double, to possibly even triple, my original investment. To me it's worth waiting the 5-6 months and find out. If at any time we break above the downtrend line and it appears to hold, I will be the first to post it here and sell my TZA. Indeed, I would be very happy to be wrong here, as I would love everything President Obama and his Administration are doing to succeed. I win on either side of this bet. But your challenge will be to preserve your capital at all costs! Some are doing that buy buying Gold, as it has climbed most recently from $860 to $958 at the close on Friday. Silver also has advanced. Inflation has a way to go before it affects us directly, but that day will come too just when we enter a Bull Market rally. Come back and read my posts as I post almost daily and while it is mostly now about the stock market I also post on the news of the day when the moment or topic moves me. Good luck! And if you haven't taken my Mini poll on the right side of the page, please do. Thanks for coming.

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Saturday, May 23, 2009

Using triple play ETF's to trade in the stock market.

Let me start first with what a Triple play ETF is. It is often noted as "3x". It is an instrument, which is based on an index of stocks designed to give you triple the swing of the based index. If the base index of stocks moves up 1%, then the Long ETF would give you nearly a 3% gain and the Short would give you a 3% loss. This instrument is most useful when the overall stock market is in a tight range of about a 2% movement over the period of a week or longer. We have been in that period the last few weeks.

I have gone through the list of all ETF's specifically looking for these Triple plays and will list them alphabetically below along with the basket of stocks they are based upon and whether they are a Bull (Long) or Bear (Short).

DZK Developing Market Bull 3x
EDC Emerging Market Bull 3x
DPK Developing Market Bear 3x
ERY Energy Bear 3x
ERX Energy Bull 3x
FAS Financial Bull 3x
FAZ Financial Bear 3x
MWJ Mid Cap Bull 3x
MWN Mid cap Bear 3x
TMF 30 Year Treasury Bull 3x
TMV 30 Year Treasury Bear 3x
TNA Small Cap Bull 3x
TYD 10 Year Treasury Bull 3x
TYH Tech Bull 3x
TYO 10 Year Treasury Bear 3x
TYP Tech Bear 3x
TZA Small cap Bear 3x

If you have been reading my Blog you know I currently own TZA and also some FAZ shares, as I believe we are going to have another correction and eventually test the low 7,000's on the Dow and possibly retest the 6,440 low of March. That will mean another loss for those long the market of 12% from here or even possibly 24%. Having triple plays if this should occur would mean gains of between 36% and 75%. Of course if I am wrong and the market goes up an equivalent amount I could lose another 36% or 75% as well. I just don't think I am wrong here. But the good thing is that there will be an answer as time will tell!

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Thursday, May 21, 2009

Market outlook going forward? Down in advance of the 3 day weekend.

Back on April 25th I said the following: "Gold closed yesterday at $914/ounce and 2 weeks ago it closed at $890/ounce. This is a 2.7% gain. The Dow didn't gain anything, the S&P500 gained only 1.2% and the Nasdaq gained 2.5%. Technology did the best in the markets, but not as good as did Gold. I have said to watch Gold prices to get a best sense of direction of the market. If Gold goes up, the markets will drop and if Gold drops the market should go up. I think there is a trend building for Gold's continued rise, going forward."

Gold closed today at $953/ounce, up $15/ounce in trading. I think we are still going higher!

On May 16th I said to watch the Tech sector. I said specifically the following: "Here, Jim Cramer of CNBC's Mad Money and I part ways, as he sees Tech stocks taking us higher. I see Tech stocks now leading us down as many take their profits from the lows. Besides, it is the closest Index to the 200 day Moving Average and is being pressed to go lower. Let's see if I'm correct. Stay tuned.

On May 9th, in my post on the "Put to Call ratio as an Indicator" I said the following:

The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely.

Well on Friday May 8th the Dow closed at 8,574. Many analysts and investors then, including Jim Cramer, were telling people to jump into the market before the train leaves the station. Yesterday it closed at 8,292 and because we have a 3 day weekend because of Memorial Day, the Banks and the Stock market will be closed on Monday. Therefore many may not want to hold stock going into the long weekend and therefore it should be a down day today. Volume both on Wednesday and Thursday was higher than on Monday and Tuesday. So we have had dropping prices on higher Volume, a Bearish indicator.

I know it is easy to get caught up in the excitement when the market is rising and you're not in and invested. It has a way of enticing us in because we are afraid we might lose out on the gains. How do I know this? Because I have experienced the same thing in times past. But I realize that there must be logic and rationality and an over arching belief about current conditions in the world and the U.S to give validity to such hope and promise. That time will come. But it is not now. As long as you continue to see or hear about more layoffs and foreclosures at the clip we have seen recently, it can't be getting better any time soon. It may not get worse, but it is pretty bad now if you haven't noticed. We all have friends or family or neighbors who are unemployed and scared about finding a job, any job. And when the FED says things are going to be bad going forward, when they change their projections on unemployment and GDP, pay attention.

Futures point to a higher open today. But beware, it makes sense to me that the markets should close down for the 3 day weekend. The last hour will be what to watch. Oh and one last thing, the 3 Month LIBOR rate has dropped to 0.66%, which is unbelievably low. And speaking of banks, BankUnited FSB has been shut down by regulators. It is the largest bank to be closed down this year. It is located in Florida.

UPDATE 6:00am PST.

Art Cashin was just on CNBC and believes the market will close up today because he believes the Shorts will be nervous going into a long weekend. So there you have it. We are on opposite sides on this one. He is usually more correct in his market calls than I am. But one ting he did say was that yesterday there was markets were scared yesterday on the question of US AAA Rating by S&P could be downgraded. Later in the day the Ratings agency came out and said there was no merit to the rumors. However, Pimco's Mohammed El Erian, also on CNBC this morning, was concerned of the unintended consequences of government policies and the implications to the markets. So there seems enough concerns going forward to stay cautious and not just jump in and blow all your cash in the market.

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Market outlook for May 21, 2009: "DOW"n again! :) UPDATE #2

Looking at all the indicators this morning in pre market, they point to a down market today. I played around with Capitals in the title to signify DOW and down. Hope you got it when you read it. Starting with European stocks, all Indexes are down 1.5-2.3% this morning. Same is true for Asian stocks last night. Gold has risen to $940/ounce. Oil yesterday closed over $60/barrel and all 3 US. Indexes, the Dow, Nasdaq and S&P 500 all dropped sharply in the last hour of trading, following the same pattern the day before. But yesterday's drop was much steeper than on Tuesday. The Put to Call ratio closed at 0.86, while the VIX closed at 29.03 after hitting a low for the day of 26.57.

What is apparently driving the market lower? It is the newly released FOMC Minutes of the meeting of April 28th and 29th, which showed the Fed expects the economic outlook to be worse than it did in January. I will show some highlights here, but if you want to read the comments for yourself click on this link and read them for yourself in entirety. Make sure when you go to the link you not only click on the Statement but actually download the 344 KB file. Here's some excerpts and summary conclusions from the report:

Federal Reserve officials, who see possible signs of “stabilization” in the U.S. economy, signaled they’re not convinced those improvements will persist. They saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks.” They forecast a deeper U.S. contraction than they foresaw in January, with a 9 percent unemployment rate lasting through the end of 2010. The jobless rate may remain as high as 8.5 percent in late 2011. A firming in consumer confidence, industrial production and other areas of the economy indicate the recession may be easing. Banks are still struggling with rising loan delinquencies in a variety of categories. Nearly 8 percent of residential real estate loans were delinquent in the first quarter, up from 6.3 percent in the fourth quarter, according to seasonally adjusted Fed data.

So if the economy is counting on consumer confidence recovering, it seems to me the unemployment picture will not improve until jobs do. That may be the same conclusion other investors have and why they see a pull back in order, hence al the markets dropping.

Additional news is feeding the concern. Here are a few headlines to add to the worry:
- Four Accused of Plotting to Bomb New York Synagogue (As if we needed this very real threat! Thank God the FBI caught them)
- U.K. May Lose AAA Rating at S&P as Government Debt Approaches 100% of GDP (How about a whole country losing its rating. I told you it was worse in Europe)
- Greenspan Says U.S. Banks Still Have `Large' Unfunded Capital Requirement (As Reagan would say, "There he goes again! Do we need this from him right now?)
- Weekly Jobless Claims down 12,000 to 631,000 and Continuing Claims rose to a new high at 6.66 Million unemployed. (Does the number 666 scare you? It should!)

Today I am planning on buying more TZA at these levels and may add more FAZ to my current shares. Both are Triple Short investment as it seems to be the only smart move to me right now.

UPDATE #1: 7:00am PST
The Put to Call ratio in the first 1/2 hour of trading rose to 0.96. Gold has hit $940/ounce as well. The Dow is now down 120 at below 8,300 and the S&P 500 is below 900 and at 892. Nasdaq got as low as at 1,704 but is staying above 1,700 level so far.

UPDATE #2 12:00pm PST

With one hour to go, the Dow is down about 190 and Gold has risen to close at $953, up $15/ounce. The Put to Call ratio hit a high today of 1.11 after 1 hour of trading. Currently it has pulled back to 0.98 at Noon PST. And lastly the VIX has moved up to 32.64 and reversed the downtrend it has had the past few weeks. We are looking at a 3 day weekend because of Memorial Day weekend and many are using the long weekend to take profits so expect this decline to continue tomorrow.

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Wednesday, May 20, 2009

Pre market outlook for May 20, 2009: More of the same ambivalence!.UPDATE

The market continues to struggle between the Bulls and the Bears. So far it is a tie. Pre Market Futures indicators show again an upward bias, although trading currently in Europe is mixed. Gold holds at $927/ounce in European trading. The Put to Call ratio was basically unchanged yesterday from Monday closing at 0.82, up from 0.78 on Monday's close. However the VIX Index closed below 30 for the first time since September at 28.80, which is not good for those wishing for volatility and wider spreads in prices during the trading day. Just ahead of summer vacations this is the kind of market that can cause markets to drift lower for the longs ahead of the Fall turbulence we have become accustomed.

There were only a few pieces of news worth commenting on this morning. First was what is going on in Japan. Here are a few news excerpts I found noteworthy.

Japan Economy Shrinks Record 15.2% as Exports, Spending Plunge. Gross domestic product fell an annualized 15.2 percent in the three months ended March 31, following a revised fourth- quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. The economy contracted 3.5 percent in the year ended March 31, the most since records began in 1955. “There is a huge problem of over-capacity,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “That means capital spending is not likely to pick up.” The failure of export demand to do better than simply stabilize will probably limit the scope of Japan’s recovery.

To read more on this news item above click here.

Another news item was about HPQ ( Hewlett-Packard) and their earnings after the bell yesterday. Here are various excerpts from that story:

Hewlett-Packard Co. said Tuesday that earnings fell 17% in the second fiscal quarter as sales fell across nearly all the company's business lines, most particularly among PCs, servers and printers... -They also disclosed plans to lay off another 6,000 workers -- on top of previously announced job cuts -- as it continues to shed costs... Revenue fell across nearly all of the company's business lines during the quarter. In the earnings call, Hurd said the company is ahead of schedule integrating the EDS acquisition. The company is more than halfway through the planned workforce reduction of 25,000 employees that it outlined last year.

Hurd also said the company has found an additional $500 million in cost savings -- mostly through facilities and other real estate commitments that will be eliminated. H-P also said it will lay off an additional 2% of its workforce -- beyond the number it spelled out last year -- over the next 12 months. That equates to about 6,000 more job cuts at the company.

Many market traders said they see this as positive. I don't know why to be honest. Companies laying off more workers and cutting out costs through restructuring may all sound great but it adds to the overall unemployment rate for the country and those jobs will never be coming back. In my view the real story going on is that Corporate America may survive by cutting workers everywhere but the overall affect on the economy is going to continue to be crippling for a very long time to come. This means more foreclosures down the line, more government help and a lengthening of the time when this thing finally turns around. Markets may move up on selective companies taking dramatic actions to survive, but this is setting up a real plunge in the markets eventually in the Fall unless things change where more jobs are created. With al the talk of stimulus, I don't see it showing up on the jobs front.

Somebody please paint me a rosier picture! You Comment below and I will put it up here for all to see. I continue to hold TZA and FAZ shares.


Markets closed down today. Gold closed at $938/ounce. The Put to Call ratio closed at 0.86. The VIX Index closed up at 29.03 but not until it hit a low of 26.57 earlier in the morning.

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Tuesday, May 19, 2009

Pre market outlook for May 19, 2009: Cautious

The big news this morning was Housing Starts for April coming in at record lows and new Building Permits as well. The Futures were all showing today was going to be an up day until this news came out. Also, Home Depot beat analysts expectations on their earnings reported for the quarter, but they got there by closing stores, laying off people and cutting other costs. You can't cut your way to growth. You either have it or you don't. Revenues for Home Depot were down 10% and that is the real story in my view.

I was asked by a friend where the market was going as it has been still pointing to a continued uptrend as yesterday's market action was green in all Indexes. I said to my friend this was true but Volume was pathetic. Art Cashin on CNBC this morning also commented on this. He said that people he talks to are very divided on the direction of the market. He said about half believe this is going to continue while the other half believe not only are we going lower but they believe we will test the previous lows of 6,400 but may go lower.

I continue to use the 200 Day Moving Average as my major indicator right now as we are still below it on the Dow and S&P 500, but not on the Nasdaq. The Dow 200 day Moving average line crosses the axis now at 8,900. On the S&P 500, it crosses the axis at 942. The Nasdaq is slightly above its 200 day Moving average which crosses the axis at 1,725. We had closed yesterday at 1732. Watch this index pull back today or the next day or so and will be the clue that we will not go above the 200 day Moving Averages any time soon and it means we are closer to a pullback and correction!

One last thing Art Cashin said this morning and has been going on in my thoughts as well but hadn't heard it put that way of clarity until now. He said, There are a lot of cross currents going on right now and something, in essence, seems fishy. I have felt this too.

The market feels like it is being heavily manipulated to show an uptrend, as Volume is low. The only reason I can think of why this is going on is to try to build confidence by the public in the markets again. If this is what is going on, they should stop it as no one believes this stuff and it feels like a setup to get others to invest their remaining cash so someone can take it away again. Many of us don't believe this market rally is nothing more than a Bear market rally. There really isn't any good news out there yet.

The Put to Call ratio stays in a tight low range and closed yesterday at 0.78 while the VIX Index at 30.24 by days end. And not unrelated, Tim Geithner warned us yesterday of higher unemployment to come and more bad days ahead. As long as people are fearful of losing their jobs there will not be a recovery.

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Monday, May 18, 2009

Pre-Market outlook for May 18th and more! UPDATE

European markets are up in oversees markets going inot the open this morning. The Nikkei however lost over 200 points in overnight trading. Dow, Nasdaq and S&P Futures are pointing to an up market at the open helped along by several pieces of news. One piece of news is about India. The election win, of the party of the Prime Minister Singh's Congress Party, has resulted in the biggest gain in India's stock market. It gained 17% and the Rupee gained 3.6% while the Bond market declined sharply, as many Indians see more continued growth and prosperity under the ruling party, going forward. Trading was halted in their stock market because of the sharp surge in the Sensitive Index or Sensex. According to these news reports, markets are euphoric.

The other news is about 3 Month LIBOR rates. It is at the lowest level in a long time. According to news reports, "LIBOR has dropped more than two basis points for the past four days. The last time it fell so much was in the four days through Jan. 13.

Some measures show financial institutions are still wary of lending after banks racked up more than $1.4 trillion of writedowns and losses since the start of 2007."

Also reported in the same article was this little nugget of related news: "The drop in Libor has less to do with rising confidence among financial institutions than it does with surging customer deposits, Jim Vogel, an analyst at FTN Financial said last week. Deposits at U.S. banks jumped by almost $400 billion in the past six months, contributing to reduced demand for loans in the interbank market".

So it looks like the American Consumer has finally decided to save rather than spend. It is my view that this is a once in a generation shift in the mindset of Americans and this trend will not change for a very long time, just as it had affected the generation who lived through the Great Depression and Crash of 1929 and the 1930's. So don't be looking to Consumers to just go out and spend anytime soon. It is also worth noting that the Consumer is responsible for 70% of the growth in the economy. If there were ever something to worry about, this news tidbit is it.

The market may rise at the open today, because of the India news, but believe me this will be short lived. Today after the Bell, Lowe's reports earnings and tomorrow Home Depot. As Jim Cramer, of CNBC's Mad Money, has pointed out on his show last week, they are both over weighted in their footprints in Florida and California and will give a read on the two States economies. Heck, I can tell you things are bad in California and the State especially manifests these troubles as unless the Ballot measures approved by State Legislatures is approved by Voters in a Special Election tomorrow, the State will have to lay off thousands of teachers, sell prime property assets to private investors, and release tens of thousands of prisoners from jails, as it can't afford to keep them jailed.

Bad times are almost a given here in California as it has exemplified the Sub Prime problem in State government by always borrowing to help someone without thinking of how to pay for it. The latest read on the Special Election Ballot measures is that they will be defeated and the State will face draconian measures under Governor Arnold Schwarzenegger.

UPDATE: 8:15am PST

Market opened higher as expected. Lowe's announced earnings and they beat analysts expectations but Revenues were down over 6%. And while the stock is up $1.17/share to $19.62, there are concerns that they have not reduced their inventory fast enough to keep up with falling demand. So the question is will this be just a 1 or 2 day rally for the stock.

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Sunday, May 17, 2009

Catholic Bishops are hypocrites!

This from today's news on President Obama giving commencement speech at Notre Dame, quoting Bloomberg News, "The president’s appearance at Notre Dame returned to the forefront a national debate over abortion and other social issues that shadowed his two predecessors and that Obama largely has sidestepped. It likely will escalate again with Obama’s nomination in the coming weeks of a new U.S. Supreme Court justice to replace Justice David Souter, who is retiring.

Anti-abortion demonstrators have staged protests almost daily, and more than 74 bishops have publicly criticized the university’s decision"
(referring to the University inviting President Obama to give the commencement given his pro choice stand).

Can we all agree that the U.S. Bishops are hypocrites and political as well. They allowed sexual matters between Priests and children parishioners to go on, while they knew about it and did little to nothing, until forced to do so through lawsuits. They incite demonstrations and are counterproductive to finding solutions which divide Americans. Instead of working with President Obama on how to prevent teen pregnancies, they rather have their dominions protest and try to embarrass the Notre Dame University leadership and the students, as well as the President. Seems like they need a little confession soon, which they say can heal the heart. Clergy, heal they self! Let's face it, we all would rather see more adoptions and less unwanted pregnancies, and the Catholic Church is against contraception. Go figure! They are trying to increase the Catholic population, so they have more eventual contributors to the Church. It is all about self interest and money! I'm glad I switched and left the Catholic Church behind.

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Saturday, May 16, 2009

Market outlook for the week of May 18th, 2009

Back on April 10th, I made these comments for my Blog post that day regarding watching the price of Gold:

Gold has finally gone down as the market has gone up. On March 17th I said the following, "If Gold can get back below 900 watch the market move up more strongly. Gold is at 916 in pre-market. The low closing last week was 905. We were as low as 820 in January and I can see Gold pulling back significantly to these levels if news continues good."

As we now know from the 3 month chart above, after that statement on March 17th, Gold shares soared after the treasury decided to buy back Treasury notes, going to $952 before settling in back at the close Friday of 880. That is a significant pullback and shows the rally for the past 30 days is for real. Watch for moves up in Gold to signal a market reversal."

If you want to know where the market is going watch Gold, because as either inflation is going up or if people are more worried/scared, or manufacturing has sharply increased and is using more of the precious metal, Gold rises. Well this week we saw the Core CPI almost at zero so that indicator should not make Gold rise. Neither has manufacturing increased the use of Gold. But Gold did rise this week, closing at $932/ounce. The only reason is that people are more worried about where we are in the recovery of our financial system and the economy. Gold may go over the $952/ounce it had done back earlier.

The Dow closed this week at 8,269. This is down 305 points from the previous week's close of 8,574. The Nasdaq closed this week at 1680 and is down 59 points from the previous week's close of 1739. And the S&P 500 closed this week at 883 and is down 27 points from the previous week's close of 910. These declines although not steep were steady starting on Tuesday and continuing to the close Friday. When the market is in a declining phase low volume can chip away at these indexes for quite a while until the final surge to the lows and then reversal in trend. So as we look ahead, it is difficult to predict when this decline will stop and where it will stop.

The flood of newly issued shares by many of the Banks to raise capital sucked the wind and momentum of the uptrend rally in this market. More new shares should hit the market this week and next so I am pretty confident this downtrend will last for at least several weeks. My guess is that it will be gradual and possible as a zig-zag saw tooth pattern. You know those patterns as they are teasers. One day up a few points and then a day down of larger proportion. If you are wanting the market to go up it can be very frustrating to watch. However, if you have a sizable short position as I do, you can just let it play out and relax until it picks up steam and volume, because eventually one sells their position to take a profit. Timing is difficult during this pattern but if the focus is profit and not greed, it is a much easier trade.

The Put to Call ratio is also slowly rising but only very slowly as it closed yesterday at 0.80 and while it reached as high as 0.93 on Thursday intraday, it had a much lower range yesterday between 0.73 and 0.80. The VIX also remained subdued closing yesterday at 33.12, up 1.75 for the day, but well below the highs we had come to expect in the 40's and 50's when the market dropped back in early March. It still was a healthy 5.6% gain. It may be the more sensitive of the indicators to watch, in the coming weeks.

Look now at the 3 charts above. They are of all 3 Indexes, the Dow, Nasdaq and SP500. The red line is the 200 day Moving Average for each Index. If you look at the slope of that line, it is my belief that will be the rate of decline for the next few weeks. It looks to me almost predictable. So if you take the Dow, I would guess that we will be down testing the 8,000 level in the 2 weeks and on the Nasdaq we should be testing the 1600 level and on the S&P 500 we should be testing the 840 level again. Here, Jim Cramer of CNBC's Mad Money and I part ways, as he sees Tech stocks taking us higher. I see Tech stocks now leading us down as many take their profits from the lows. Besides, it is the closest Index to the 200 day Moving Average and is being pressed to go lower. Let's see if I'm correct. Stay tuned.

So I will continue to hold both TZA and FAZ and enjoy the ride. I think those on the Short side can go away and come back in a week.

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Thursday, May 14, 2009

Pelosi informed on use of torture? Who cares!

Whether Speaker Pelosi was informed or not on the use of torture, it doesn't matter. It doesn't matter if she were informed and she wrote a letter in disagreement with its use, as did apparently Rep. Jane Harman of CA. This is gotcha politics by Right Wing Republicans, who supported the Bush/Cheney policies, trying to distract the focus off the Bush Administration. No one seems to care that the ranking Democrat on the Intelligence Committee objected to the tactics. Isn't that enough to end this stupid and illogical argument? Apparently again, no it's not!

The media needs to use their brains and get the message back on point: That both Bush and Cheney authorized these torture tactics and they need to be brought up on War Crimes. It may not happen by U.S. lawmakers but there will be a government in the world that will eventually. This is just pastime nonsense. Let's get back to real news, how's the dog acclimating to the White House. Yes, the media always has its priorities right, don't they. Where have they been the past 8 years? Sleeping as best I can tell and it the Blogs who have stolen their attention to the point where Newspapers may become obsolete sooner, rather than later. Maybe Blogs will become the TV visual media going forward. One can surely hope. :) Maybe I will put up a video clip in the future. Now that could be news. :)

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1929 versus 2009 for the stock market.

I found this post from the which it posted in March comparing the 1929 Crash to this crash. I have taken the liberty to place their chart at the top of this post and an excerpt I found worthy of a comment. First here's the excerpt:

"P/E is now 14, after falling from its bubble-highs. Leonhardt points out that in past crashes it hit 7 or so. Stocks have another 50% to go. (P is stock price, E is 10 year trailing earnings). 14 is a normal P/E, but not a bargain level, particularly in a recession. So far the crash has brought us back to normal, nothing more. A 4000 Dow might just happen.

This may be a particularly ugly crash simply because stocks were more overpriced."

I have 2 charts above. One is from TheMarket Guardian of the 1929 Crash and the other is a chart of the Dow in the recent 20 years to use as comparison.

I do not see us going this low UNLESS we have one of these issues President Obama is doing the best he and his Administration can, blows up. There are plenty of hand wringers around, as this entire article clearly shows. But the magnitude of these issues is sufficient to get us back down to a Dow of 6,400 again. To me the safest bet over the next year or two is this: When in doubt about market direction lean more to the Short side than the Long side. It won't take much to scare people again to panic as nerves are still sensitive. It will take a very long time to erase the fear and go Long as this financial disaster has yet to claim more victims, including Banks. This issue has rocked the Consumer for years to come. And the Unemployment numbers keep reinforcing those fears for Millions of Americans, their family and their neighbors. We are all affected whether we like it or not. Do we spend the time necessary to find out who caused this problem and find soem who should be in Jail? No. But we should!

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Wednesday, May 13, 2009

Where's the stock market going next? Try wearing this story for size, down! (UPDATE)

I have not posted anything on the market since Saturday's post. In that piece I said the following, "The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely." At that time the Dow was at 8,574 and the Nasdaq was at 1739. Today the market closed with the Dow at 8,285 and the Nasdaq closed at 1664. While the Dow dropped 185 points today, the volume was less than yesterdays. Same was true for the Nasdaq Composite Index volume. I would have liked to see a bit higher volume but it just means the drive lower will be slow and not fast.

TZA gained $3.67/share today to close at $30.84 for a 13.5% gain for the day. FAZ gained $0.75/share to close at $6.17 for a 13.9% gain. That was a nice recovery for both Triple Shorts. The Put to Call ratio closed today at 0.89, not anywhere near the extreme highs we had for the past year. There's plenty of room for it to go higher. I hope you now believe what I have maintained for a while through difficult times for Short positions. I know your question so here's the answer. The market should go lower, in my opinion. If you want to know the slope of the downtrend just look at the slope of the 200 day Moving average line for the Dow and the S&P 500. The Indexes should stay below the line. On the Dow, the line now crosses the axis a little below 9,000. On the S&P 500, the line crosses the axis at 950 and on the Nasdaq, it crosses the axis at 1735. It will be the Nasdaq Index to watch. Since we closed today at 1664 we are just below it and have stayed below it the past 5 days. Before that, we were above it for 3 days. So the pullback is being led by the Nasdaq. Watch that index during the day to get a sense if we are going to go above it and stay there. I just don't think that is going to happen any time soon.

Another piece of info I learned today was that when the top 19 largest U.S. banks were Stress Tests, the oversees branches of these banks were not included in the test. Considering Europe is in worse shape than the US, it seems that the Stress Test results most likely would have been worse. This would have meant much more money would need to be raised by each of the banks failing the tests. When I say that Europe is in worse shape consider this Spain currently has 17% Unemployment. And consider this, many of the banks requiring to raise Capital are doing it all at the same time. This will dry up money for new investments and cause additional pressure on the banking Index and on stocks in general. This all points to the market going down.

Let me answer another question you might have. Is it too late to get in on the Shorts like TZA and FAZ? Simply put, no!


Looking for more clues as to market direction this morning and Gold is now at $925/ounce. It is still going up. I think Gold will continue to go up as the market pulls back. Unemployment claims for the week rose to 637,000, an increase of 32,000 from the previous week. This shows that we have not leveled off in unemployment as many had hoped. Continuing claims, also reported this morning, are at the highest level since 1950, 6.56 Million unemployed. One other number worth noting is the 3 Month LIBOR rate which is currently at 0.854, this is the lowest I have seen this number in many years. It is the rate Banks lend to each other.

Also, Asian markets sold off last night and European markets are mostly down this morning. While our Futures point to a neutral open, I believe we will go lower for the day. Art Cashin of UBS Warburg when asked this morning about market direction he said we need to hold the S&P500 at 870 or above. If we break through that level it's then 862 and if we break through that level we go to 820. Art also said it needed to be watched carefully as we go lower, because of the difficulty in predicting how low it is going to go.

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Monday, May 11, 2009

Milestone reached

This weekend a new milestone was reached on this Blog. I have now over 40,000 visitors to the site and they have read over 65,000 pages. Thanks to all you who have come to see what I have written over the past 4 years. Today I start my 5th year wondering where this will go. As long as I think I am helping others, I guess I will continue. The day I don't think I do will be my last day. Hopefully that is in the distant future. Thanks especially to those who have left a comment over these past 4 years.

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Saturday, May 09, 2009

Put to Call ratio as a market Indicator

This morning I was doing some research and had a discovery that I wanted to share with my readers. It has to do with stock market indicators I track daily and what they mean to me. I am always open to hear other points of view on the same data so have at it if you like. The one I chose to focus on today was the much touted Put to Call ratio. Simply put, it is a ratio of the trading volume of put options to call options. It is used to gauge investor sentiment. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market. I use the extremes of this indicator to help me determine market turning points and whether I should buy or sell stocks. In looking at the Put to Call ratio from 2004 to 2009, I discovered some interesting facts. First looking at the chart above, I have selected the most extreme values on the Index and plotted them as they occur over time on the Dow chart. You can see that most of the extreme point showed Bearish trends for most of 2007 and 2008, with the exception of a few low data extreme points such as 0.57 and 0.66. Most of the signals said to sell. You might want to double click on the chart to see it larger on a separate page.

The number of times the Put to Call ratio was at the highs of between 1.2 and 1.7 was 135 times out of 1400 data points. That's 9.6% of the time the sentiment was very pessimistic (Bearish). Interestingly, of those 135 times, here's the number of times by year:

2004 9
2005 9
2006 20
2007 33
2008 36
2009 0 (so far)

Here's a breakdown of these 36 signals by month for 2008
Jan 5
Feb 2
Mar 9
April 2
May 0
June 1
July 2
Aug 0
Sept 5
Oct 7
Nov 3
Dec 0

Remember it was Oct. 2008 that had the big drop from a Dow of 11,000 to about 7,800. The Put to Call ratio was screaming in March warning us of an impending drop in the market.

The number of times the Put to Call ratio was at the lows of between 0.69 to as low as 0.32, was 88 times out of 1400 data points. That's 6.3% of the time the sentiment was very optimistic (Bullish). Again, interestingly, of those 88 times, here's the number of times by year:

2004 51
2005 13
2006 15
2007 2
2008 0*
2009 6

* Notice that there were 0 Bullish signals in 2008 and also notice that for only the first 4 months of 2009 there has been 6 Bullish signals. It may be we are in line for about 18 for the year at this rate.

Here's what the Dow did in each of those years starting with the first number the opening price in January and the second number the December ending.

2004 10,425 10,800
2005 10,800 10,796
2006 10,796 12,500
2007 12,500 13,264
2008 13,264 8,483
2009 8,483 8,574 Closing price on May 8th

It is clear from the above data that there were many signals to sell and prevent the loss of capital by watching this Put to Call Indicator. The difficulty with using any single indicator to make a market decision is that you don't know if you are in a transition period within that indicator or not. So using the highs and lows as determination points can be misleading and costly, as I can tell you first hand. I don't use a single indicator, but try to use several. I happen to like this one but trends are more important as you can see from the above data, than isolated data points.

If any of you were recipients of my Newsletter and can remember back in 2000, I had used the indicator at its extreme to tell my readers I was going into 100% cash at that time because the extreme reading on the Put to Call ratio was at the most Bullish signal at 0.30. That extreme value of Bullishness could be a great tool to find a turning point while everyone is buying and selling into the rally. Conversely, when the Put to call ratio was at the extreme pessimistic value after 9/11, I used it to Buy back into the market, as did many others. So the take away is this from the Put to Call ratio, when the numbers start showing consistently a high or low value, believe the trend. If the numbers are staying low, it is a bullish sign and the market should rally. If the numbers are pointing higher, it is a bearish sign and the market will drop. However at both extremes they will reverse that trend.

Lately the market is signaling a Bullish, not bearish trend with the Put to Call closing on Friday at 0.86 and it has been as low os 0.65 recently (May 5th). We are close to testing this rally as we approach the 200 day Moving averages for the Dow and S&P 500. We have gone over the 200 day Moving average on the Nasdaq this past week but retreated below it. This next week is an important week. If I just use the Put to Call ratio as an indicator, it says the market will go higher. But if I consider the 200 day Moving average it gives me pause and has been the reason I have not sold my ETF Ultra Short, TZA. It has been painful to hold on to the shares given the big drop from about $31-$36/share purchase price to the close yesterday at $25/share. Luckily, my shares of other stocks like BCON rose significantly lately to minimize the paper loss. Here's an excerpt from the Dynamic Wealth Report on the 200 day Moving average from Feb 23rd, 2009 and is applicable today:

The 200-day moving average is still trending downward. This tells me to hold off. It’s not yet time to jump back into the markets. This is not the time to buy & hold… not yet. Believe me, I’m watching this indicator closely.

Once we start trending higher, it’ll be time to get reinvested in the markets - in a big way. Until then, continue hedging your positions… buy stocks very selectively, and stick to the strength of the markets. If you do decide to take positions, make them small… it’s a traders market right now.

One other piece of data I am watching is Insider trading. Insider Selling dollars amounts dominate the Buying and has for many months. If things are really go up a lot, someone should tell the Insiders, because they don't seem to think so!
Good luck this week. Don't forget to vote for May on my Mini Poll as to when you believe the recession will end.

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Friday, May 08, 2009

The Financial crisis: Toxic Assets or Bargains?

The Stress Test results from Banks yesterday proved one thing to me, these toxic assets may not really be as bad as everyone has claimed they are. How else could the Banks pass the Stress Tests yesterday for the most part. It wouldn't make sense unless these tests were a farce. I just can't believe that the best minds devised a test that was meaningless. Could it have been flawed for our benefit? Positively, it could have been. But with the whole world watching, I doubt it.

That means that the recent purchases of foreclosed homes by bargain hunters may have staved off a more precipitous drop in housing prices. The additional benefits from the Treasury and Fed coordination of the lowest interest rates in years have given some the bargain of their lifetime.

I have been wondering why the stock market hasn't been beaten up even more than it had. And I was also wondering why it has gained so much recently and why does this crisis not resemble the 1930's stock market crash. Well, like it or not, I believe we are moving at a pace so much faster than those of the 1929 Stock market crash and the following years of the Great Depression. In my view it is all because of Technology and the Internet. Communications happens now 24/7 where back then many didn't realize what had happened until it was affecting them directly or their neighbors. I am reminded for the rapidity of information regarding our recent scare over the Swine Flu. But the messages by the media to cover your mouth when you cough, to wash your hands throughly, may have helped ease this illness in ways we can't imagine.

With instant communications and the instant gratification this generation has come to expect, we all want to be over with this and move on with our lives. Yes many got very scared and drove to protect themselves financially, but many others are apparently over the crisis and as long as they are employed, they see enough signs to suggest they can get back to their old ways. Whether this bears out, only time will tell. One thing seems certain, these toxic assets appear to have been undervalued and since most of them are based upon real estate, there may be some terrific bargains out there. What attracts me to that idea is that real estate is a hard asset. And if we are on the path to recovery as many believe, then inflation must be around the corner from all the cash infused to save the banks and the financial system.

How has this affected my thinking about the stock market? Well we should be able to see very soon whether we are going to recover back to the Dow 10,000 and above by watching the 200 day Moving Average line. If we can get above the 200 day Moving average on Indexes like the Dow, S&P 500 and the Nasdaq Composite Index, we may recover much more quickly than many are expecting. The 200 Day Moving average on the Dow, crosses the axis at exactly 9,000 today. It crosses the S&P 500 at 957 and it crosses the Nasdaq Composite Index at 1740. We have been over the 200 day MA on the nasdaq the past 2 out of 3 days. The Dow bear market that started on September 3rd, 1929. didn't make it back to its highs until 1954!! The Dow closed yesterday at 8,409 and the S&P 500 closed at 907.

I have a hunch that this time it will be much quicker. We may look back at this time in 10 years and wonder why we acted either so afraid we missed a once in a life time opportunity or were so confident we took advantage of this situation. To me this infers you must be nimble and question yourself and your actions daily, in the face of new information and ever changing circumstances.


News just out: The unemployment rate just came out for April and it is now 8.9% nationally, up from 8.5% in March. I had expected 9.0% or over.

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Thursday, May 07, 2009

Market close May 7th summary

The Volume on the pullback today beat yesterday's volume. That is good news for those of us who have been waiting for this pullback. The Put to Call ratio in the first half hour hit a low of 0.56 and it closed at 0.80, while the VIX Index was 33.44 at the close. Finally the market acted rationally for a change. The Dow closed at 8,410, down 102, the S&P 500 closed at 907, down 12 points and the Nasdaq closed at 1716, down 43 points. So most likely this pullback has more pent up steam so I would not be surprised with a drop tomorrow on news of the Unemployment rate, combined with the Stress test results which should be released in 30 minutes from this posting.

I did not sell FAZ today and am still holding all my TZA shares. TZA gained back 6.6%, closing at 27.83/share and FAZ gained 8.2%, closing at 5.67/share.

You will notice from the 2 charts above the following:

When in the top chart the VIX Index started to really go up it was a signal to sell. The market started to go erratic around October and had 2 peaks, one in November and the other in December. But since then this Index has retreated back to the level where the rise started.

In the second chart the Put to Call ratio has settled down to the levels consistently not seen since mid May, and it has even gone to new lower levels most recently. While not at the very lowest levels I have seen over the years, if it continues to drop It will be flashing a very strong sell signal. Back in the rise of the market in 1999 and 2000 the Put to Call ratio hit the 0.30 level, which signaled the big selloff in the bubble. While we have a long way to go to get to those very low levels, I will continue to watch this indicator for any signs of a major selloff. Remember, very high levels of Put to Call ratios is often a signal to be buying and low extremes to sell. This is why I put red lines around the most recent ranges of this indicator.

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Market Outlook for May 7th and the near term (UPDATE)

It is feeling to me this rally is going to continue. When you add some apparent news on Retail, which is better than expected, and you have a real rally going on. I knew this rally was going to be for real, but I didn't know it was going to be so steady and strong, even on less volume. All my indicators show a continuation of this trend, as there doesn't seem to be bad news enough for the pullback I anticipated. But heck, maybe that is the exact moment when things are too optimistic. :)

The Put to Call ratio closed yesterday at 0.77 and the VIX Index closed at 32.45, which is thew lowest it has been since September, the beginning of the Sub Prime impact on markets. Yesterdays Volume for Dow and Nasdaq stocks hasn't been this high since April 20th. So the gain yesterday was convincing, at least to me. The Nasdaq Composite Index did end the day with a Hammer Candlestick pattern suggesting this is the end on the move up for that Index. The Dow ended the day with a Doji Cross pattern, suggesting a draw in the contest between Bulls and Bears.

There is an expression my Uncle uses in times like this, "don't fight the tape". I think it is appropriate at this juncture of the market, and I did fight it all the way. I should sometime listen to my own advice which I made about this rally back in mid March, this rally is for real and many may regret not having stocks in their portfolio becasue there will be some good gains."

FAZ shows a clear confirmation of a Sell Confirmed signal at the close yesterday by, so I may sell my few shares in it today. Regarding my shares of TZA, currently at $26.12/share, suggests a Buy If signal at the close yesterday. I am going to continue to hold these shares and may buy more to average down my costs on the shares. The market will eventually pull back and we are closer to the top of the range now, not the bottom, with the Dow closing yesterday at 8,567. I had said the top of this range is 9,200 and the bottom of this range is 7,300, so we are clearly nearer the top. The 200 day Moving Average crosses the Dow now at 9,000, so I do not see us going over this level.

When you compare where we are now, relative to 9,000, we are set for a pullback very soon. So I am holding on to my TZA shares and may take some profits now on some recent gainers and not try to time the top. This rally is not a call to Buy and Hold, but to trade it. These markets will not return to Dow 10,000 any time soon. So trading for profit is the only wise play going forward. If you can't do that, better keep your assets in cash.

UPDATE: 9:30am PST

It looks like the Nasdaq hammer Candlestick pattern was correct, the market has pulled back. Volume on both the Nasdaq and Dow are ahead of yesterday's good volume, so this downside move has more to go and may start a real reversal in trend. Gold is up to $914/ounce.

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Tuesday, May 05, 2009

The next big crisis: Retirement Funds! UPDATE #1 &2

I had several friends tell me I scared them on this story 2 posts below. I didn't mean to do that but realized I had not provided any answers to the question, So what do I do about it? The answer to me is to consider investing in more hard assets than paper products such as money, stocks or other derivatives. Consider buying things like Gold and Silver physically, not the paper stocks which trade it. Also consider buying rental income properties, which can generate cash flow positive returns, especially with the prices down so much and mortgage interest rates at the lowest level in years. If you can get these properties, they are hard assets. People can live in them and you can own something which will rise in value, as inflation rises. Inevitably it will, because of the massive amounts of dollars and Euro's in the world being printed out of thin air.

Most have their current retirement funds in accounts they have little or no control over. They are suppose to be protected not just by "promises" like IOU's, but physically there for when you retire and start to draw the funds out. Most of my retirement funds are in my own accounts, as I am self employed and set up a Defined Benefit Plan in which I am able to manage my own investments. (The average person does not have this luxury. And I am at an age where in a few years I can start to draw it out.)

The government stands behind the Pension Benefit Guaranty Corp. so I am not worried they can't print the paper and do what's necessary to help it should it need it. The overarching problem, in my view, is that it makes money appear to be worthless, as the government can print all they want to solve almost any problem. Here from the Pension Benefit Guaranty Corp.'s 2008 Strategic Plan is what they say can be a key issue:

Key Factors Affecting Achievement of PBGC Goals
Plan Underfunding
-Financial and operational risks facing the pension insurance system continue to fluctuate significantly because of the sensitivity of underfunded pension plans to changes in economic conditions. The necessary monitoring of these plans and their sponsors strains PBGC resources.

Plan Terminations
-Continued growth in the number and magnitude of pension plan terminations and the number of participants in trusteed plans increases the PBGC’s workload and the need for supporting infrastructure. This larger workload and increasing customer expectations challenge the agency’s ability to deliver quality customer service.

Complexity of Assets in Terminated Plans
-When an underfunded pension plan terminates, the plan’s existing investment portfolio is absorbed by the PBGC, which commingles the assets with its own assets under management. Assets from recent large plan terminations have included complex investment mixes that the agency manages until the assets can be liquidated. The handling of complex assets in the PBGC’s portfolio, and particularly assets that it would otherwise not hold, increases the PBGC’s investment management costs.

It is this last statement, which is the most troubling, as sure as you can count to ten, you know these are probably troubled assets or "toxic assets" on their books too.

Money will always be here, as long as it can be printed. You need to know when to hold it and when to invest it, when to invest it in soft versus hard assets. Right now inflation is all but non existent, but that will change over the next few years.

UPDATE #2 May 6th 7:30am PST

Surprising employees, today Wells fargo announced they will no longer be contributing to its traditional Employee Pension plan, cutting the total compensation of its workers only 2 weeks after announcing record first-quarter profits!

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Market Summary for May 4th and looking ahead

The markets are getting many to believe that they better get in as the train is leaving the station, but they are still timid, as low Volume says they are still waiting. There definitely is nibbling going on. I look at Insider trading daily and notice that the Insiders are still selling to raise cash, over buying, by a large dollar volume. My guess is that Hedge Funds may need to raise cash too and so there will be some selloffs into rallies but not to scare us. That is why this advance is so steady. It has not had the volatility one would expect given the past 6 months. The VIX index has been steady between 34-39 and much lower than the upper 40's to 50's level it had been at. The new money has come from funding of retirement accounts by April 15th but some will put this money into more secure investments and so this source of money to drive the market higher is about spent.

The Put to Call ratio is hanging more closer to the lows of the past 6 months than the highs from around 0.65-0.85. We are in the Dow range of 7,800 to 9,300 level we had been in before hitting the lows of 6,440. I do not see us going to 9,000 on this move up. I do see it at about 8,500-8,600 max and then a pullback. So I have decided to hold on to TZA and FAZ and ride this move up to its conclusion. I know when I am tempted to sell without supporting data, in this case high volume, we are close to the market move in the other direction. Therefore, I will Hold and not sell my ETF's, TZA and FAZ, but wait for them to be back in favor.

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Monday, May 04, 2009

The next big crisis: Retirement Funds

So do you think that if we can just get this banking crisis behind us all will be well again? Think again! Oh I know you are thinking about the rising Unemployment rate and the number of foreclosures which are tied into the banking problems also as important, and I agree. But what has not been discussed much of late is what has happened to the Pension Funds for retirees and the Agency which Insures them, the Pension Benefit Guaranty Corp.. Here straight from their website is a description of who they are.

"PBGC is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of nearly 44 million American workers and retirees in more than 29,000 private single-employer and multi-employer defined benefit pension plans. PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans."

What I have seen in the news these past few months should raise the alarm bells. Here's a sampling:

April 9, 2009 The Exxon Mobil pension fund has filed a lawsuit against its custodian Northern Trust for breaching its fiduciary responsibilities. The corporate fund is claiming that the funds garnered from the lending out of shares has been invested in risky assets by Northern Trust. These assets are alleged to have included highly-leveraged assets, mortgage-backed securities and collateralized debt obligations. It is alleged that these investments effectively generated losses for the Exxon Mobil pension fund.

April 16, 2009 A special pension fund for railroad workers that was given permission during the Bush administration to invest its assets in the stock market lost more than a third of its value during a recent 18-month period, a loss that could influence an ongoing debate about how to keep government-affiliated retirement programs solvent.

March 1, 2009 Questions arise from GM's use of pension for buyouts, VEBA trust. Details are emerging about how General Motors Corp.'s U.S. pension funds went from a $20-billion surplus at the end of 2007 to a $12.4-billion deficit 12 months later. Newly released numbers show that the funds, which help support more than 650,000 Americans, were tapped for billions of dollars over the past year for employee buyout programs, benefit increases and as part of the UAW's retiree health care trust deal.

February 2009 The Next Catastrophe: Think Fannie Mae and Freddie Mac were a politicized financial disaster? Just wait until pension funds implode. Funds worth trillions of dollars start to plummet in value. Political pressure to be “socially responsible” distorts the market decisions of government-related enterprises, leading to risky investments. Investors who once considered their retirements safely protected wake up to a sinking feeling of uncertainty and gloom. Sound like the great mortgage-fueled financial crisis of 2008? Sure. But it also describes a calamity likely to hit as soon as 2009. State, local, and private pension plans covering millions of government employees and union workers with “defined benefit” accounts are teetering on the brink of implosion, victims of both a sinking stock market and investment strategies influenced by political considerations.

There are serious faults cracking the very foundation and well being of our elder population, as it approaches retirement. The near term focus has been on the immediate Financial system recovery, which is where it should be focused, but behind that curtain is a very large problem with cataclysmic repercussions for all our soon to be retired Baby Boomers. The current Financial crisis has many related and interconnected parts and this one will play a prominent role as a new President thinks of dealing with Social Security policy changes, or should I say Social Insecurity changes as a part of reform.

Under President Bush he attempted to get Americans to take a part of their Social Security retirement Funds and to consider investing them in the stock market. If that had been done by many Americans the current situation would have been worse than it is. The problem is that the Social Security Funds were not in the Lock Box as Gore had promised should he have been elected, but were used by the Government to pay for other things, and now in the Lock Box is a big IOU with no real hope of doing anything to solve it except print more paper money. Eventually citizens are going to wake up that paper isn't really worth anything and they want real assets in exchange for goods and services. God help everyone when that happens! It is called bartering. Get used to it.

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Sunday, May 03, 2009

Mini Poll survey summary for April: How long the recession will last

Here is a summary of the Mini Poll data for March as compared to December, January and February.

First the question.
How long do you believe this recession will last?

Data for December, then January, February, March and April:
Mid 2009 4%, 17%, 10%, 12%, 4%
End 2009 35%, 25%, 24%, 21%, 25%
Mid 2010 15%, 13%, 12%, 3%, 33%
End 2010 15%, 10%, 4%, 18%, 15%
Mid 2011 12%, 17%, 10%, 3%, 4%
End 2011 8%, 0%, 10%, 3%, 4%
Mid 2012 0%, 0%, 2%, 3%, 2%
End 2012 0%, 0%, 2%, 0%, 0%
Much Longer than the choices you have provided 0%, 0%, 10%, 12%, 0%
We are going to be in a Depression 12%, 19%, 18%, 24%, 13%

If I summarize by Year:
2009 39%, 42%, 34%, 33%, 29%
2010 30%, 23%, 16%, 21%, 48%
2011 20%, 17%, 20%, 6%, 8%
2012 0%, 0%, 4%, 3%, 2%
Depression 12%, 19%, 18%, 24%, 13%

Sample size for December was 26, for January 48 votes, for February 51 votes, for March 39 votes and for April 48 votes.

The largest change in the data shows that many now believe that the recession will end in 2010, which is more optimistic than it was last month where many saw us going into a Depression. This may account for the latest market move up this past month.

I have cleared the data accumulated from the Mini poll so feel free anytime this month to enter again when you believe the recession will end. We can all see how the results change over time. I am appreciative for those of you who do vote, so thanks!

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Video Clip of my wife's art

Here is a short Video clip of my Wife unveiling her Public piece of art gifted to the Marin Art & Garden Center yesterday.

Click here.

Saturday, May 02, 2009

Market Outlook for week of May 4th

I keep saying I need a clear signal to tell market direction and the question on your mind is, Did I find any? Before I answer that here's a summary of how I look at the past week and where we find ourselves, going into the week of May 4th.

The Dow closed the week at 8,212 and this was a gain of 136 points, or 1.7% for the week. The Nasdaq closed the week at 1719 and that was a gain of 25 points, or 1.5% for the week. Those aren't big gains for the week by any measure. It felt like we were up a lot more given each day the indexes seemed to be up. Again, it feels like a smoke screen to me. The big question is how was the corresponding Volume of trading for the week. It was down again this week. So for the past 3 weeks Volume has declined steadily each week in the Dow stocks and the NYSE. However, the Tech sector Nasdaq maintained a bright spot with steady volume these past weeks with the index rising. This is the bright spot in the market to me and points to the Tech's going to lead us out of the recent big market decline from the Fall.

I have put several 6 month charts ahead of this post, worth clicking on. The first chart is of just the Dow to show the decline in Volume the past week. The second is a comparison of the Nasdaq Composite Index as compared to the Dow and the third is a comparison of the Nasdaq Composite Index as compared to the SP500. The gains of Technology seem to indicate this might be where to have been invested.

The signal I am looking for is Volume. If Volume spikes up, it won't matter what direction as direction will be clearer. Right now it is a rally lacking conviction. Now this can be a good thing as well. Many are skeptical, including yours truly, that the gains are real and many believe that we are not in a Bull Market Rally, but instead are in a Bear Market Rally. If the market can stay the course, as it has since the lows, it will eventually convert the Bears to cover their shorts and we will be on our way to a real Bull Market. But we are clearly not there yet.

The Put to Call ratio closed at 0.82, not low enough to give a sell signal but not high enough for a convincing Buy signal. To me the Put to Call would need to get over 1.05-1.20 to convince me to Buy. And it would have to get as low as 0.55-0.60 to Sell, or buy more Shorts. Some news will spark both this move and the Volume spike, but we still wait for clarity.

The news of this coming week regarding the Unemployment Rate for April has already been discounted. It will show a higher rate but a slowing of the decline over previous months. It is my opinion it will be reported at 9% or higher, getting ever closer to the 10% double digit rate most pessimistic scenarios had surmised. I do not expect this to tank the markets and do expect them to take the number in stride. More questionable will be the market's reaction to the Stress Test results expected to be released on May 7th, the day before the release of the Unemployment numbers.

If you look at the drop in Volume of the Dow index, and look at the Volume of Citigroup dropping this week, you can see a correlation. many banks had weaker Volume this week over the previous week. This can easily be seen by looking at a 6 month Chart of the volume of the Financial ETF, FAS. When they announced earlier this week that there are rebuttals by the Banks to the Treasury's Stress Test data, it quieted trading for both FAS and the short FAZ.

Add to the mix, Warren Buffet's latest comments on Real Estate and it provides an interesting back drop for the coming week. Here's what Buffet said, "There’s no signs of any real bounce at all in anything to do with housing, retailing, all that sort of thing,” said Buffett, 78, in a Bloomberg Television interview before the Omaha, Nebraska-based company’s annual shareholder meeting today. “You never know for sure, even if there’s a leveling off, which way the next move will be.”

So I leave you hopefully convinced that the market direction is still not clear, even while the Dow and S&P goes a bit higher. The only real good news is that Technology seems to be the bright spot and this is substantiated with good solid Volume. So if you believe this rally is for real, make sure you own some good tech companies in your portfolio or at least some dogs that show some life. But remember my overall advice, no matter what, preserve capital!

Bloomberg Survey

Release Period Prior Median
Indicator Date Value Forecast
Construct Spending MOM% 5/4 March -0.9% -1.6%
Pending Homes MOM% 5/4 March 2.1% 0.0%
ISM NonManu Index 5/5 April 40.8 42.0
Initial Claims ,000’s 5/7 2-May 631 635
Cont. Claims ,000’s 5/7 25-Apr 6271 6350
Productivity QOQ% 5/7 4Q -0.4% 0.8%
Labor Costs QOQ% 5/7 4Q P 5.7% 2.8%
Cons. Credit $ Blns 5/7 March -7.5 -4.5
Nonfarm Payrolls ,000’s 5/8 April -663 -600
Unemploy Rate % 5/8 April 8.5% 8.9%
Manu Payrolls ,000’s 5/8 April -161 -157
Hourly Earnings MOM% 5/8 April 0.2% 0.2%
Hourly Earnings YOY% 5/8 April 3.4% 3.3%
Avg Weekly Hours 5/8 April 33.2 33.2
Whlsale Inv. MOM% 5/8 March -1.5% -1.0%

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